, which offer important new insights into the interaction of contract choices, fairness and incentives. …

contracts in a moral hazard context. Explicit incentive contracts that are optimal according to self-interest theory become … this and predominantly choose the bonus contracts, even preferring a pure bonus contract over a contract that combines the … enforcement power of explicit and implicit incentives. This contract preference is associated with the fact that explicit …

Under weak contract enforcement the trading parties’ trust, defined as their belief in other’s trustworthiness, appears … important for realizing gains from trade. In contrast, under strong contract enforcement beliefs about other’s trustworthiness … appear less important, suggesting that trust and contract enforcement are substitutes. Here we show, however, that trust and …

contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse … a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions …, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how …